Question

On December 20, 2017, Butanta Company (a U.S. company headquartered in Miami, Florida) sold parts to a foreign customer at a price of 75,000 ostras. Payment is received on January 10, 2018. Currency exchange rates for 1 ostra are as follows:
December 20, 2017 $1.17
December 31, 2017 1.14
January 10, 2018 1.10

Required:
a. How does the fluctuation in exchange rates affect Butanta's 2017 income statement?
b. How does the fluctuation in exchange rates affect Butanta's 2018 income statement?

Answer 1

Answer:

A. Decrease in asset $2,250

B. Decrease in asset $3,000

Explanation:

A. Calculation for How does the fluctuation in exchange rates affect Butanta's 2017 income statement

Transaction amount in Dollar terms as on date of transaction ($75,000*1.17) $ 87,750

Transaction amount in Dollar terms as on Year end 31/12/2017 ($75,000*1.14) $ 85,500

Decrease in asset ($ 87,750 -$ 85,500 ) $ 2,250

Since will have Decrease in asset of the amount of $2,250 in 2017 which means that their is foreign exchange loss due to DECREASES in dollar value

B. Calculation for does the fluctuation in exchange rates affect Butanta's 2018 income statement

Transaction amount in Dollar terms as on Year end 31/12/2017 (75,000*1.14) $ 85,500

Transaction amount in Dollar terms as on date of receipt of payment 10/1/2018 (75,000*1.10) $ 82,500

Decrease in asset (85,500 - 82,500) $ 3,000

Since will have Decrease in asset of the amount of $3,000 in 2018 which means that their is foreign exchange loss due to DECREASES in dollar value